Achieving growth is a dream for every business, more so if it is a small or medium enterprise. Who doesn’t like expanding their production and also the revenue of their business? While business expansion is necessary, one thing which is primarily required for business growth is finance (with acumen being the second important ingredient). How does one secure business finance?
Banks and financial institutions provide the solution – business loans.
Business loans are the perfect solutions to financing which enables business growth. Banks and financial institutions lend the much-required business finance in India to business enterprises. This finance comes in two variants – secured loans and unsecured loans. Do you know what they are and how they are different?
Secured business loans
Secured business loans are also called asset-backed loans. These loans are granted on the value of an asset which is pledged as collateral for the loan. These loans are risk-free from the lender’s perspective as in the case of default by the borrower, the asset which is pledged is possessed by the bank to fulfill the loan liability.
Unsecured business loans
Unsecured loans, on the contrary, do not require any collateral or security. The loan is granted on the repayment capacity of the business which is indicated by the enterprise’s creditworthiness. These loans are granted as short-term loans which also have short repayment tenure.
Difference between the two
Both secured and unsecured business loans are fundamentally different and their differences are as follows:
|Secured Loans||Unsecured Loans|
|They require a security against the value of the loan||These loans are granted without the requirement of any collateral|
|The interest rate is low||Interest rate is high|
|The amount of loan depends on the value of the asset pledged for the loan||The amount of loan depends on the repayment capacity and creditworthiness of the enterprise|
Do unsecured loans help in business growth?
Unsecured loans are very easily available and do not require any collateral. They thus have various advantages which make them an ideal solution for quick financing. But do such loans also enable business growth? Let’s find out:
No asset backing required
Secured loans are limiting in the sense that they require business assets to be pledged as collateral. Unsecured loans are easily available and they do not require any business assets to be secured. As such these loans are not restricting. If your business is small and does not have many assets, it becomes a problem to avail a secured loan. This hinders the growth of business. Unsecured loans, on the other hand, can be availed without any assets.
The quantum of loan is not limited
Suppose you require a loan worth Rs.50 lakhs but the value of assets which are to be pledged is limited to Rs.40 lakhs. Would you be able to acquire the desired loan? Secured loans allow loans limited to the value of the asset pledged. Even in this case, the total value of asset is not allowed as loan as a margin is retained by the lender. So, if you have an asset worth Rs.20 lakhs and want a loan of Rs.20 lakhs, you would be able to avail only 80% to 90% of the value of your asset (Rs.20 lakhs in this case) as loan (i.e. Rs.16 lakhs or Rs.18 lakhs). In case of unsecured loans, the loan is granted on the business potential and creditworthiness and not limited by the value of any asset. Thus, businesses can avail an unsecured loan as per their requirement for aiding growth.
Unsecured loans are easily available as the funds are sanctioned within days of the loan application being done. As such, these loans provide the necessary funding to businesses in a short span of time which can be used to increase business profitability and boost business growth. These loans come in handy when the business is poised to grow following a surge in demand. As the loan is easily available, high demand can be met by increasing production. High demand yields better revenue for the business and enables it to grow.
Ideal for young businesses
Businesses which are still in their nascent stage require funding to expand and grow. This funding can be easily secured through an unsecured loan as it does not require any collateral, which is hard to source for budding businesses. Thus, the growth of these young enterprises is dependent on unsecured business loans.
Unsecured business loans, therefore, play an important part in the growth of businesses. Though long term secured loans are essential for long-term finance, short-term unsecured loans help businesses meet their more immediate requirements, which has a direct bearing on their growth.
NBFCs offer unsecured business loans which are also called as business installment loans or term finance. This loan offers the following benefits to businesses:
1. A loan of Rs.1 lakh to Rs.1 crore can be availed by businesses for any of their requirements.
2. There are no hidden or additional charges under the loan. Applicants are required to pay only a small processing fee of 2% of the loan amount borrowed. Apart from this there are no foreclosure or part-prepayment charges incurred on the loan.
3. Certain NBFCs use customized credit criteria while underwriting customers. The credit offering is tailored as per the applicant’s requirement.
4. The loan is sanctioned within 3 days of successful application thus providing the funds at the earliest.
5. No collateral security is required for the loan.
6. Application for the loan can be done quickly through the online medium which reduces unnecessary hassles.
Unsecured loans sometimes prove to be that important source of funding without which businesses couldn’t have grown and achieved enhanced profitability. If you are also looking for a business loan for your business growth avail an unsecured loan today!
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Oct 24, 2018
The start of a brand new financial year is filled with several emotions for SME owners, ranging from relief after the intense pressure of March, anticipations and excitement for the year ahead. Amidst these, business owners often don’t find the opportunity to celebrate the year that has gone by and the new financial year up ahead.
The new financial year is the only occasion that is of sole significance to an SME, whereas every other event, festival or celebration involves friends and family. It is that time when the SME can celebrate with their team the previous fiscal year that was full of learnings, experiences, peaks and troughs. The beginning of a financial year also presents a unique prospect to start over; SMEs can renew their enthusiasm and vigor as they make new business decisions.
Indeed, celebrating the new financial year can become an ongoing ritual for SMEs as it also helps establish a stronger workforce with a refined drive towards the company’s vision. To gain an advantageous start, here are some practices to ease you into the new fiscal year, so that you can look forward to bigger success celebrations at the end of it.
1. Set financial goals
Whether your financial goals are numerical or tangible, they should be defined in a manner that lets you evaluate if they can be achieved or not. These can be long-term, such as profitability, margins, sustained cash flows, etc. that may not be accomplished over the span of the financial year ahead or specific goals that are short-term.
For example, a retail store that has rented a space might learn that the building owner plans to sell the building eventually, and intends to acquire the space for further expansion. For a smooth sale without depleting the working capital, the retailer should have a clear sense of the cost of down payment, mortgage and additional costs. Based on this, they can create a strict budget for the year and stick to it. Another option is to avail collateral-free finance options such as Term Finance or Merchant Cash Advance that offers flexible modes for repayment.
2. Evaluate the scope of debts
The beginning of the year is the best time to assess the debts that you might have accumulated over the past years. Start by weighing each of your existing loans based on its cost, interest rate and other subsidiary factors such as prepayment penalty. Always ensure that the loan with the highest ticket size is repaid first.
Business finance is not often a liability-encountering measure, but also an instrument for growth, expansion and diversification of your business. If you have a promising business opportunity at hand and are reluctant to accept it due to a shortage of funds, this is when you should consider availing business finance. To determine the customized credit solution that best suits your business, check out Our Products.
3. Improve book-keeping
Unorganized compilation of financial records is the most recurrent theme for SMEs who let go of trickling financial losses, only to discover a gaping hole in its wake. Unexpected, unrecorded cash expenses often eat their way into the profitability of a business, resulting in a long-lasting impact that might take several years to recover from.
It is integral to maintain records of operational and financial performance, and the method you adopt to maintain these play a major role in determining the accuracy of the data. If you have been managing business accounts on your own, it is advised that you hire an experienced tax accountant or opt for an enhanced accounting software this fiscal year. This will keep you free to focus on other tasks, with the assurance that you one step closer to higher profits.
4. Plan for new partnerships
Large corporations can perform the role of different stakeholders to an SME; they can assume roles as business partners, product distributors or customers. Contrary to conventional belief, small businesses have much to gain by associating with bigger businesses that operate differently from the way the SMEs function. This ensures that the partnership remains fruitful for both the entities involved, and avoids situations where they find themselves competing with each other If you feel that your enterprise will benefit from such a collaboration to supplement time, logistical organization and resources, this new financial year is when you can make that move.
5. Identify a new customer base
For any SME, extending the outreach of your brand to a wide demography of consumers is instrumental to evolve into a larger organisation. If you envision a steady rate of growth, what best time to target a brand new audience than the start of the financial year? You can also think of ways to improvise your product or service for a high-potential customer segment that is less exposed to competition. At the end of the day, this is an exercise that promotes out-of-the-box thinking.
A sound financial budget prepared with the above points in mind ensures that you are better prepared to face the new fiscal year. Also, it gives you an edge over your competitors on several fronts, and getting a business finance partner for your needs becomes much simpler when you are armed with a well-calculated plan.
Capital Float exists to serve the unique business aspirations of ambitious SMEs like you. With a growing base of 80,000 customers in over 300 cities across India, we provide customized credit solutions for the diverse needs that you might have. Paperless loan application, minimal documentation requirement and quick processing ensure that you receive funds when you need it. Choose from our new, innovative financial solutions for FY 18-19 and get ready to #BreakLimits!
Oct 24, 2018
The Goods and Services Tax (GST) is proposed to be implemented from July 01, 2017, and will effectively change the face of indirect taxation in India. Some of the key benefits expected include a simpler and more transparent tax system that will reduce tax evasion and boost revenues; more competitive manufacturing, especially in the MSME sector, thanks to reduction in tax cascading; and improved GDP due to a wider coverage of goods and services. This attempt towards bringing to life a “One Nation, One Tax” legislation will have far-reaching implications on every citizen, and will impact business finance and personal finances too. This is especially true for SMEs, as they will see a direct impact on their working capital. It is therefore prudent to plan for this crucial event.
Here is all you need to know about the GST rollout.
What is GST
GST is a unified system for indirect taxation, leading to the establishment of a new four-tier indirect tax structure that replaces the existing indirect tax regime. Essentially, four new indirect tax slabs will come into effect, i.e., goods and services will hereafter be taxed according to the slabs of 5%, 12%, 18% or 28%.
|Rate of Indirect Tax||Goods/ Service|
|Exempt||Goods of mass consumption such as grains and milk|
|5%||Essential items such as edible oil, tea, coffee, insulin, incense sticks, etc. that are exempt from excise duty and are charged at a VAT of 5%. Certain processed foods like sauces, pickles, and preserves as well.|
|12%||Goods currently taxed at 9% to 15% such as processed food and computers|
|18%||Goods currently taxed between 15% and 21% (soaps, smartphones, utility electronic items and, industrial inputs).|
|28%||Luxury goods such as SUVs, select consumables (aerated drinks, tobacco), white goods (AC, fridge) and goods that fall under the current tax bracket of 30% to 31%. Luxury and select consumables will attract an additional cess.|
These four structural slabs allow a provision to charge a maximum of 40% GST rate, i.e., a combination of 20% Central GST and 20% state GST.
Services will be taxed at a standard or default tax rate of 18%. Only five luxury services, i.e., five-star hotels, movie tickets, racing and betting (racing and casinos) will fall in the 28% tax bucket. E-commerce companies will be subject to 1% tax collected at source.
The build-up to the GST: A track of timelines
The story began with the Central Government releasing the Revised Model GST Law for public purview on November 26, 2016, and the setting up of the GST Council to discuss and approve the Bill. Thereafter, the Council met on subsequent occasions to discuss and approve the section terms, and targeted a rollout date of April 01, 2017. The latest is a meeting held on 11th June, wherein the tax rates for 66 items have been reduced. A rollout date of July 01, 2017 has now been set. As a result, four legal bills have been presented and passed for different categories:
- Central GST Bill (CGST): For supply of goods and services by the Central Government within the boundaries of a state.
- Integrated GST Bill (IGST): For supply of goods and services between different states, carried out by the Central Government.
- Union Territory GST Bill (UGST): For supply of goods and services in the Union Territories.
- The Compensation Bill: To govern the provision of compensation for revenue losses brought on by GST implementation, over the next five years from implementation.
All four bills have been passed in the Lok Sabha and subsequently the Rajya Sabha after a series of changes at the Centre. These bills have received approvals from 16 state assemblies with Delhi being the most recent.
Rules and Acts under the GST
The Government is also in the process of driving the GST Council to put together rules and acts for GST implementation. Following are the GST rules passed till date: Composition Rules, Valuation Rules, Transition Rules, Input Tax Credit Rules, Invoice Rules, Payment Rules, Refund Rules, Registration Rules and Return Rules.
Proposed outcomes of the GST for the Government
According to Finance Minister Arun Jaitley, India will evolve to be a more tax-compliant society thanks to the GST. He also clarified that the GST would not lead to inflation, addressing the Opposition’s concerns in the Rajya Sabha.
Here are some of the key benefits of GST:
- GST will cover the GDP more comprehensively by covering a wider base of goods and services A single indirect tax regime will be instrumental in removing cascading taxation, i.e., tax payment upon tax, or multiple taxation.
- GST will eliminate any direct interaction between the assessing authority and the tax payer by standardizing and automating processes, and will interlink incentives for compliance, making the tax system more accountable.
- Overall and on an average, tax slabs may see reductions and the industry may benefit from the greater cash flow that will ensue.
Despite these proposed gains, a closer look at the GST reveals certain drawbacks. Four slabs is a significant number of tax slabs for a unified tax regime, and the tax rates appear to be high. These factors are likely to lead to tax evasions and legal battles.
Proposed outcomes of the GST for tax payers and businesses
For businesses, the implications vary. The “Place of Supply” and the “Time of Supply” are two important considerations that businesses must reflect on.
Goods and service providers will be subject to the tax slab depending on the “Place of Supply”. If the “Place of Supply” is intra-state, then each company entity will need to register separately for the GST in each state of operation, and will be liable to a mix of CGST and the respective State’s SGST. For “Place of Supply” being inter-state, the business will need to register in the state of origin and avail IGST in the remaining states. This makes it imperative for businesses to register correctly to levy the appropriate taxation rate.
Business norms for supplier management will change, with input credit being made available to businesses, but compliance requirements will become more stringent, leading to additional costs for businesses. Businesses must therefore be prepared to plan their cash flows better in light of the GST implementation. This is particularly true with regards to input tax credit, which can have strong implications on working capital for SMEs. This might create a cash crunch in the short term, but will equalize over time.
With the GST rollout fast approaching, it is best to stay informed and be prepared for this sweeping change. We at Capital Float can help you do just that: Visit our GST blog to know more about GST and keep track of latest.
Oct 24, 2018